Ohio House will consider frack tax bill

by MARC KOVAC | CAPITAL BUREAU CHIEFPublished: May 13, 2014 2:52PM

COLUMBUS -- The Ohio House could vote as soon as today on legislation to increase taxes on oil and gas produced via fracking, following a split committee vote Tuesday, with Democratic and some Republican members opposing.

The final version of House Bill 375 OK'd by the chamber's Ways and Means Committee would set the tax rate on oil and gas produced via horizontal hydraulic fracturing at 2.5 percent, with lower rates for vertical wells.

Of the resulting revenues, more than $20 million would go to state regulatory efforts, a new well-plugging program and geological mapping activities.

A total of 15 percent would be directed to local governments, with specified amounts directed to eastern Ohio shale counties. And any remaining money would be used for a statewide income tax cut.

The House Ways and Means Committee on Tuesday also added a nonrefundable credit for commercial activity taxes paid on horizontal wells.

The final committee vote on the bill was 11-10.

"This is not perfect," said Chairman Jeff McClain (R-Upper Sandusky). "I think when you look at it, all the meetings I've been in, I'm not sure I've seen anybody happy with the bill, but it's something that we can go forward with and we can live with."

He added, "It's where we are now. ... We are at the point that we need to do something [to provide] some assurance of what's going to happen with the industry... In the end, I believe, that it will be something that is going to help all Ohioans."

Tom Stewart, executive vice president of the Oil an Gas Association, voiced his support of the bill Tuesday.

"We think it's a pretty good, complete package," he said. "A lot of problems have been solved over the past couple weeks. We're trying to bring certainty to the industry, solve a festering problem that's been around this legislature now for two and a half years. Hopefully we can move forward."

Democrats who opposed the bill have said repeatedly that increased tax collections should support local governments, particularly those among eastern Ohio's emerging shale oilfields.

"We, first of all, have starved them in terms of giving them the money we promised them for local governments," said Rep. Tom Letson (D-Warren). "... We're going to give an income tax reduction that does not amount to a full tank of gasoline for the average citizen of the state of Ohio simply so we can go editorial boards and say, 'We gave a tax reduction.' Well that isn't the best use of that particular fund, and I'm embarrassed by it."

Some Republicans say increasing taxes on fracking could prompt the industry to invest in other states.

"... We are increasing this tax on an industry to pay for tax cuts," said Rep. John Adams (R-Sidney). "Therefore, it's a tax shift. ... As a limited-government legislator, I'll be voting no on this bill."

Rep. John Becker (R-Clermont County), added, "To reduce the income tax, I think a better route to go is through reductions in spending rather than shifting the burden of taxation."

The Ohio House's approval of the bill would not mark an end to lawmaker debate, however. The Ohio Senate will have deliberations of its own on the proposed law changes, and both chambers would have to agree on a final version before sending the bill to Gov. John Kasich for his signature.

Kasich, who has been pushing for a bigger frack tax increase and resulting income tax cut, remains opposed to the latest version of the legislation moving through the Ohio House.

"The governor's committed to continuing to reduce Ohio's income taxes," Rob Nichols, the governor's spokesman, reiterated in a released statement Tuesday. "Unfortunately their new plan still falls short of what the governor believes is needed."

Marc Kovac is the Dix Capital Bureau Chief. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog.